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Quoting Rates Honestly (Seems Obvious, But…)

Quoting Rates Honestly (Seems Obvious, But...)

We recently quoted an interest rate to a borrower in contract, but before we had a chance to lock the rate, rates improved by 1/8%.

So naturally, we locked the lower rate and let the borrower know. We did this even though we did not have to (the borrower was very happy with our initial quote and had no idea rates improved) and even though we would have made an additional $4,500 if we had not let the borrower know.

So, who cares, right?

Well, we obviously care – as we know numerous lenders who never do this, and who actually give us a hard time for “giving away money for no reason,” as we always share rate improvements that pop up before we lock.

And we also share our “pricing specials” from our investors, including Fannie Mae.

LENDERS NOT TELLING FIRST-TIME HOMEBUYERS ABOUT FANNIE’S RATE IMPROVEMENTS!

Fannie Mae announced massive rate improvements for first-time homebuyers late last year – and they can easily improve first-time homebuyer rates by over 1%.

I blogged about this here and here.

We, however, know of several major lenders who are not telling first-time homebuyers about Fannie’s new program, and most first-time homebuyers don’t have a clue.

By not telling buyers about this program, lenders can easily make an additional $5,000 to $10,000. But – it is extremely unfair to the first-time homebuyers – needless to say (and I can’t imagine Fannie Mae would be too happy about it either).

Again – this all seems obvious, but we have seen this pop up so often lately that I wanted to blog about it.

RISK = PAPER-THIN MARGINS

Our rate-quoting strategy is to simply quote every rate as thinly as possible – where we can still make money.

And that is why it can be pretty painful to get into pricing wars, as we often end up doing loans for “free” simply to cover our costs.

This is not to say that we don’t like healthy competition up front; it is only the 11th hour price wars that are difficult and costly.

For example, we have an agent who sometimes encourages his clients to “shop us” after we have pre-approved them – and after they are in contract and after we have scrubbed the file for underwriting.

Because these are often complex jumbo files, it is not uncommon for us to have over $4,000 of costs into the file (for labor, verifications, appraisals on occasion, general overhead, and more).

Hence, when we are already quoting paper-thin, cutting our margin even more by quoting a lower rate – just forces us to do the loan for enough rebate to cover our costs (or to do the loan for “free”).

In any case, one of the biggest misconceptions by people outside the mortgage industry is the belief that our margins are much larger than they are.

Jay Voorhees
Founder | JVM Lending
(855) 855-4491 | DRE# 1197176, NMLS# 310167